Nigeria Holds Key Interest Rate at 13 percent

Nigeria’s central bank left the monetary policy rate unchanged at 13 percent on May 19th, while setting a unified cash reserve requirement for public and private sector deposits. Policymakers showed concern over foreign reserves level, while saying that monetary policy is gradually approaching the limits of tightening.

The CRR on Private and Public Sector deposits were both set at 31 percent. Previously, the rate for private sector funds was 20 percent and 75 percent for public funds. The liquidity ratio was retained at 30 percent.

Nigeria's forex reserves have been on a downward trend since last year, as central bank had to use them to support the naira which lost about 20 percent to the USD since November of 2014. On May 15th, the reserves dropped 20.6 percent year-on-year to $ 29.80 billion (from $ 37.54 billion).

As a result of naira depreciation, imported food prices have been pushing inflation up. In April 2015, it edged up to nearly 2-year high of 8.7 percent. Meanwhile, the GDP expanded an annual 3.96 percent in the first three months of 2015, the slowest pace since the last quarter of 2012.

Excerpt from the statement by the Central Bank of Nigeria:

“The Committee stressed the need for proactive measures to protect the reserves buffer, to safeguard the value of the domestic currency, and engender the overall stability of the banking system.”

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